Is the Market Giving Keith Meister’s Ralcorp Gambit Enough Credit?

by Dee GillAugust 24, 2012

Activist investor Keith Meister stepped in Thursday to shake up store brands food company Ralcorp (RAH), and the market reacted with a smattering of polite applause. But if Meister can do for Ralcorp what he did for AboveNet last winter, investors really ought to be a whole lot more excited than this stock chart indicates.

Meister’s Corvex Management announced Thursday that it owned a 5.1% stake in Ralcorp and suggested the company either put itself up for sale or line up some serious acquisitions of its own. It just so happens that Meister’s done pretty well recently pursuing that first option.

At AboveNet, Meister propped up the stock some 41% in a very short time by orchestrating a takeover. On Dec. 1, 2011, his Corvex Management fund reported that he’d collected a 5.1% stake in the fiber bandwidth seller for an average $59.58 a share. Like Ralcorp, AboveNet had previously received takeover bids it rejected as inadequate. Less than four months after Meister’s arrival, AboveNet sold to Zayo Group for $84 a share.

A key difference between Ralcorp and AboveNet: the tech company had actually solicited takeover bids before Meister stepped in. Ralcorp, you might recall, rejected without negotiation unsolicited bids from ConAgra (CAG) and adopted several measures to make further takeover attempts less likely.

One of those steps involved spinning off its high-margin cereals like Post Raisin Bran and Cocoa Puffs into a separately traded company. In February, Ralcorp gave its shareholders one share of Post Holdings (POST) for every two of Ralcorp, which left Ralcorp standing with its core business of selling store brands, ingredients and prepared foods to corporate buyers. The wisdom of this plan has yet to be demonstrated or debunked. Your two shares of Ralcorp at the beginning of this year were worth about the same amount as two Ralcorp shares plus one Post Holdings share today.

Meister is known to play well with others, even when he’s acting as an activist. He learned the business under activist master Carl Icahn, got start-up money from George Soros for Coventry, and has avoided the more contentious personal battles that often come with this territory. Perhaps things between Ralcorp and ConAgra will get more mannerly with Meister around.